Richarddd,

You're exactly right that their are other factors at work. I'd sugest that there is a significant negative effect on the loyalty of higher paying customers when you overload the "status" designation with people. The airlines are aiming for a "snob" effect in this case, meaning that some people will even pay to maintain status. We can see that clearly in action on this site. People are willing to pay more in time, money, or whatever to maintain their status. There is no value to upgrades if everyone can do it, just like their is no value to boarding in Group 1 if everyone can do it.

With regards to less expensive seats, I think that is simply the market at work. I will preface this with the statement that for the vast majority of the flying public a direct flight when they want to go is most valuable. People who place less value on their own time might be willing to take a worse seat, or horrible connections. That is simply a personal calculation of the relative benefits (cost-benefit, opportunity cost) of the different options. An i-banker who needs to get to LA now from NYC is unlikely to be willing to route through Seattle because they place a high value on time. A retiree, who has lots of time to spare, will probably take the longer flight because they place a lower value on time. Each makes an economically rational decision based on their own consumption preferences.

Of course, none of this is black and white. My initial analysis was simply to point out the context, and admittedly a simplified one, for how AA makes customer decisions.